《金融期货与期权》（英文版） Chapter 2 Mechanics of futures Markets

2.1 Mechanics of futures Markets Chapter 2 Options Futures, and other Derivatives, 5th edition C 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 2.1 Mechanics of Futures Markets Chapter 2

2.2 Futures Contracts Available on a wide range of underlying assets Exchange traded Specifications need to be defined What can be delivered Where it can be delivered When it can be delivered Settled da Options Futures, and other Derivatives, 5th edition C 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 2.2 Futures Contracts • Available on a wide range of underlying assets • Exchange traded • Specifications need to be defined: – What can be delivered, – Where it can be delivered, – When it can be delivered • Settled daily

2.3 margins a margin is cash or marketable securities deposited by an investor with his or her broker The balance in the margin account is adjusted to reflect daily settlement Margins minimize the possibility of a loss through a default on a contract Options Futures, and other Derivatives, 5th edition C 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 2.3 Margins • A margin is cash or marketable securities deposited by an investor with his or her broker • The balance in the margin account is adjusted to reflect daily settlement • Margins minimize the possibility of a loss through a default on a contract

2.4 Example of a Futures trade An investor takes a long position in 2 December gold futures contracts on June 5 contract size is 100 oz futures price is US$400 margin requirement is uS$2, 000/contract (US$4,000 in total) maintenance margin is US$1, 500/contract (US$3,000 in total) Options Futures, and other Derivatives, 5th edition C 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 2.4 Example of a Futures Trade • An investor takes a long position in 2 December gold futures contracts on June 5 – contract size is 100 oz. – futures price is US$400 – margin requirement is US$2,000/contract (US$4,000 in total) – maintenance margin is US$1,500/contract (US$3,000 in total)

2.5 A Possible outcome Table 2.1, Page 25 Daily Cumulative Margin Futures Gain Gain Account Margin Price (Loss) Loss) Balance Call Day (USS)(USS)(US$)(USS)(USS 400.00 4.000 5Jun397.00(600)(600)3,400 0 13Jun39330(420)(1,340)2,660+1,340=4000 <3.000 19Jun387.00(1,140)(2.600)2,740+1,260=4,000 26-Jun392.30 260(1,540)5,060 0 Options Futures, and other Derivatives, 5th edition o 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 2.5 A Possible Outcome Table 2.1, Page 25 Daily Cumulative Margin Futures Gain Gain Account Margin Price (Loss) (Loss) Balance Call Day (US$) (US$) (US$) (US$) (US$) 400.00 4,000 5-Jun 397.00 (600) (600) 3,400 0 . . . . . . . . . . . . . . . . . . 13-Jun 393.30 (420) (1,340) 2,660 1,340 . . . . . . . . . . . . . . . . . 19-Jun 387.00 (1,140) (2,600) 2,740 1,260 . . . . . . . . . . . . . . . . . . 26-Jun 392.30 260 (1,540) 5,060 0 + = 4,000 3,000 + = 4,000 <

2.6 Other Key points about futures They are settled daily Closing out a futures position involves entering into an offsetting trade Most contracts are closed out before maturity Options Futures, and other Derivatives, 5th edition C 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 2.6 Other Key Points About Futures • They are settled daily • Closing out a futures position involves entering into an offsetting trade • Most contracts are closed out before maturity

2.7 Delivery If a contract is not closed out before maturit it usually settled by delivering the assets underlying the contract. When there are alternatives about what is delivered. where it is delivered. and when it is delivered the party with the short position chooses A few contracts(for example, those on stock indices and Eurodollars) are settled in cash Options Futures, and other Derivatives, 5th edition C 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 2.7 Delivery • If a contract is not closed out before maturity, it usually settled by delivering the assets underlying the contract. When there are alternatives about what is delivered, where it is delivered, and when it is delivered, the party with the short position chooses. • A few contracts (for example, those on stock indices and Eurodollars) are settled in cash

2.8 Some Terminology Open interest: the total number of contracts outstanding equal to number of long positions or number of short positions Settlement price: the price just before the final bell each day used for the daily settlement process Volume of trading: the number of trades in 1 day Options Futures, and other Derivatives, 5th edition C 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 2.8 Some Terminology • Open interest: the total number of contracts outstanding – equal to number of long positions or number of short positions • Settlement price: the price just before the final bell each day – used for the daily settlement process • Volume of trading: the number of trades in 1 day

2.9 Convergence of Futures to Spot (Figure 2.1, page 23) Futures Price TSpot Price Spot Price Futures Price Time Time (b) Options Futures, and other Derivatives, 5th edition C 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 2.9 Convergence of Futures to Spot (Figure 2.1, page 23) Time Time (a) (b) Futures Price Futures Price Spot Price Spot Price

2.10 Questions When a new trade is completed what are the possible effects on the open interest? Can the volume of trading in a day be greater than the open interest? Options Futures, and other Derivatives, 5th edition C 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 2.10 Questions • When a new trade is completed what are the possible effects on the open interest? • Can the volume of trading in a day be greater than the open interest?